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Something Good To Say About California's Prop 13 In A Housing Slump

July 10, 2008, 1pm PDT

Long considered the source of California's fiscal and land use woes, Proposition 13, passed by voters in 1978, limits increases in property tax. However, it may prove to be an 'economic stabilizer' during the current housing slump.

"For decades, Proposition 13 has been cast as the bane of cash-strapped local government, limiting property tax revenues even as California's housing market soared.

But this week, as county assessors reported rising tax bases despite the housing slump, they credited the 30-year-old law -- revealing its unexpected role as an economic stabilizer.

A stabilizer "prevents soaring tax bills for homeowners but also prevents tumbling tax revenue for governments", stated Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.

"The big factor (in the increase in the tax base while home prices fell) is Prop. 13," said Los Angeles County Assessor Rick Auerbach, explaining his county's 6.9% increase in the total property assessment roll."

"Proposition 13, approved by voters in 1978, limits tax increases on a property to 2% a year as long as that property doesn't change hands. It kept tax rates lower than housing values during the long real estate boom. But because the 2% increases can be assessed even during housing downturns, governments can count on the extra revenue as long as most home values in a county have not fallen below the assessed values.

State law allows homeowners who believe their property values have dropped below their assessed value to have those values reconsidered, and thousands have done so. Over the last few months, county officials have been reviewing properties in their jurisdictions that were purchased after 2004, which are most likely to have lower values than the purchase price."